Parent Plus Loans are one of the more challenging student loans to have if you’re low-income or moderate-income with high expenses. The repayment options mostly suck. And when you call your loan servicer for help in dealing with these student loans, they tell you there’s nothing they can do to lower your monthly payment.
It’s totally understandable if the lack of help makes you want to throw your hands in the air and just ignore your student loans.
But if you do that, at some point, your Parent Plus loan will default.
In this post, I’ll not only go over the consequences of defaulting on a Parent Plus Loan but also what you can do to get the loan debt out of default while saving some money.
Before we get there, let’s start with...
What is a Parent Plus Loan
A Parent Plus Loan is a federal student loan that is made to the parent or guardian of a student to pay for educational expenses.
Because it is a federal student loan, a Parent Plus Loan is eligible for a repayment plan based on your income and for student loan forgiveness under programs like the Public Service Loan Forgiveness program. To qualify, the Parent Plus Loan borrower, not the student, has to work for the government or a nonprofit.
Likewise, because it’s a federal loan, a Parent Plus Loan is not subject to the statute of limitations.
Only private student loans are subject to a statute of limitations.
You will owe this loan until it’s paid in full or you die.
How to Get a Lower Monthly Payment on a Parent Plus Loan
When you can’t afford the payment for your Parent Plus Loan, the first thing you want to do is check what type of Parent Plus Loan you have.
Check to see if it is a:
- Direct Consolidation of a Parent Plus Loan
- Direct Parent Plus Loan
- Federal Family Education Consolidation of a Parent Plus Loan or
- FFEL Parent Plus loan.
Hopefully, it’s a Direct Consolidation Parent Plus Loan. I’ll explain why that is in a second.
The easiest way to check this is to use your Federal Student Aid ID to view your loans at the National Student Loan Data System.
After you log-in, the second column will show you what type of loan you have.
Once you know what type of Parent Plus loan you have, you’ll know what repayment options you have available and whether you need to consolidate.
For many Parent Plus Loan borrowers, the best repayment option is going to be the Income-Contingent Repayment plan.
Parent Plus Loans aren’t eligible for the best income-based loan repayment options (think: REPAYE, PAYE, and IBR).
The ICR plan is the only income-based repayment plan a Parent Plus Loan borrower can use to get a payment based on her income.
There’s a huge catch though:
Consolidation is necessary to get an income-based payment.
This is why I said you need to first check what type of loan you have. Once you know that, you’ll know whether you need to consolidate your loans or not.
Consolidation is free
Unlike refinancing private student loans, there is no origination fee for a consolidation loan. And it’s not based on your credit history or credit score.
What Happens if You Don’t Pay a Parent Plus Loan
Parent Plus Loans offer repayment options when you can’t pay. And this is true even if you can’t afford the lower payment with the ICR plan. In that case, try asking your loan servicer for a deferment or a forbearance.
Federal student loans offer various deferments and forbearances that will allow you to avoid making payments for a short while.
But those deferments and forbearances aren’t everlasting; they will run out.
And when they do, and you still can’t make your monthly payments, then you’re out of options.
Here’s what happens then:
- After 90 days of missed loan payments, your loan will be reported as delinquent to the credit bureaus
- After 180 days of missed loan payments, your credit report will be updated to show the lengthy nonpayment history
- After 270 days of missed loan payments, your loan will default.
When your student loan defaults, that’s when the trouble begins.
Parent Plus Loan Default Consequences
The dangers of student loan default are the same for all federal student loans.
After defaulting, you’re faced with
The other sneaky thing that happens is that your loan debt will increase substantially.
The master promissory note you signed to borrow the federal student loans allows the government to capitalize the accrued interest on your account when you default.
That same promissory note allows collection fees to be added as well.
Combined, I’ve seen those two things cause a parent’s student debt to almost double.
Thankfully, there’s a way to eliminate at least some of the loan debt.
How to Get Out of Parent Plus Loan Default
When you default on a Parent Plus Loan there are two options to get out of default:
- consolidation and
- loan rehabilitation.
Consolidation gets your student loan out of default by consolidating the defaulted Parent Plus Loan into a new Direct Consolidation Loan.
This may or may not be an option for you depending on two things:
- whether you have a wage garnishment for these defaulted loans and
- whether you have another loan to consolidate it with.
If you have a FFEL Parent Plus Loan, you don’t need another loan to pair it with. You can consolidate it by itself into a new consolidation loan.
Loan rehabilitation gets you out of default by entering you into an agreement to make 9 monthly payments in a repayment program.
After the 9th monthly payment, your loan will be brought out of default and sent to a new loan servicer.
From there, you’ll be able to set up a new monthly payment plan.
Loan rehabilitation may waive collection fees
Another benefit of the loan rehabilitation program is that the government will waive the collection charges once you successfully rehabilitate the defaulted loan. Before you sign the rehabilitation agreement letter, check to see if it says the collection fees will be waived.
Can a Defaulted Parent Plus be Forgiven?
It makes sense to wonder if there are any Parent Plus Loan forgiveness programs for loans that are in default. Typically, by the time you’ve defaulted, you’ll owe much more on the loan than you originally borrowed. Plus, you’re near retirement. It’s looking more and more likely that you’ll carry these loans to your grave unless they’re forgiven.
Unfortunately, there are no loan forgiveness programs for defaulted Parent Plus Loans (or any student loan debt for that matter).
The two main loan forgiveness programs, Public Service Loan Forgiveness Program and the loan forgiveness program for Income-Driven Repayment plans, both require your loans to be out of default and that you make a number of on-time monthly payments.